Here is our summary of key economic events overnight along with the news Russia has a brutal new scheme in their invasion of Ukraine. This said civilians can flee, but only to Russia, otherwise they will be bombed. Virtually no one accepts the “offer”. The rush to the west continues despite the risks and threats.

Commodity prices continue to rise. Hard raw materials like nickel and tin which no sign of overtaking. Iron-ore is on the move again. Wheat is the same. Your estimate of the direction of consumer prices and inflation is about as good (or bad) as professional analysts can muster. The speed of change, and its pervasiveness, is unprecedented. Some analysts are saying now is the time for central banks to step in and do their job by pushing back much more aggressively now.

There will definitely be much higher inflation. But it is difficult to envisage an economic expansion in the near future. The result will likely be a long period of stagflation, at best (if we can avoid recession).

Yesterday we highlighted the significantly higher food prices. Today we should highlight significantly higher fertilizer costs. They were on the rise before the Ukrainian invasion due to rising oil prices which are key inputs for manufacture of nitrogen fertilizers. But because Russia and Belarus are key sources for much of these imports, the cost of fertilizer for the world’s farmers is skyrocketing to another level. Food crops will become much more expensive regardless of how farmers react – if they keep adding fertilizer to maintain production, consumers will have to pay those costs. If they reduce or eliminate fertilizers, the sharp drop in supply will also increase prices. (H/T CA.) “Going to bed hungry” will sweep through global populations much faster now.

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Late yesterday, China reported pretty strong export sales for the first two months of 2022 (they don’t do those two months individually). Exports are up +16.3% and imports were up +15.5% from the same period a year ago, although to be fair, the prior year base was softer than usual. Chinese imports of coal and oil fell sharply over the period, helping to inflate the overall balance. But it’s hard to see these trends continuing, especially if they decide they need another major boost.

Impressively, their trade surplus swelled to +US$116m during the period, from +US$97bn in the same period of 2021. Trade with the booming US economy helped a lot (+US$60 billion and up +US$10 billion from a year ago). Together with Australia, they ran a deficit of -$10 billion in the two months (vs. -$11 billion), with New Zealand a deficit of -$1.8 billion (vs. -1.25 billion US dollars).

But we have to keep trade with the United States in perspective. As good as it may be for China, the surge in the US$+10 billion surplus represents just over 4 hours of annual US economic activity and goes unnoticed by them.

Meanwhile, China’s foreign exchange reserves fell slightly, a surprise as we were expecting a slight increase. It was also a small change, -$8 billion in a US$3.2 billion holding. This is also the equivalent of around 4 hours of annual Chinese economic activity, also imperceptible to them. The “huge” Chinese foreign reserves represent about 70 days of economic activity. Five years ago, there were 89 days of detention on these reserves, so they are slowly eroding.

The events exceeded the mood in Germany, but it should be noted that in January, German retail sales were on the mend impressively, up more than +10% compared to the same month a year ago. However, subsequent gains may have more to do with “panic buying” over security concerns, rather than an improving economic outlook.

Updated Australian data released yesterday was quite positive. Their services PMI rose at a level that indicates strong expansion in this sector. This is a nine-month high and strong expansion across all countries. Their job posting levels have increased well, and at a 14-year high. Despite these good data, investors are retreating in the financial markets.

The 10-year UST yield opens today at 1.73% and up +1bp from the same time yesterday. The UST 2-10 yield curve today starts a little flatter at +23 bps. Their 1-5 curve is a little steeper at +64 bps and their 30 day-10 year curve is also steeper at +158 bps. The Australian 10-year bond is up +5 bps at 2.16%. The 10-year Chinese government bond is unchanged at 2.85%. And the New Zealand 10-year government is down -5 basis points to 2.74%.

In New York, the S&P500 is down -2.1% and retreats in Monday afternoon trading on Wall Street. Stagflation fears are pushing this market down. European markets overnight fell as much in some cases, less in others. Yesterday, Tokyo ended down -2.9%. Hong Kong was down -3.9%. Shanghai was down -3.2% as the aftermath hit them all hard. The ASX200 ended its Monday session down -1.0%. The NZX50 ended down -1.9%.

The price of gold starts today at US$1979/oz and up to +US$6/oz since yesterday. But it was quite volatile between the two, briefly breaking above US$2,000 and then falling back.

And oil prices are higher today and +3$US/bbl. No tracing here. In the US they are now slightly below US$113.50/bbl. The international price is only US$121/bbl. All of this will affect prices at the pump, so working from home if you can will be a strong incentive. Plane tickets will also be a problem.

The Kiwi Dollar will open today -¼c lower at 68.3 USc. Against the Australian dollar, we are at AUc 93.2 and firmer. Against the euro, we are at 62.8 euro cents and unchanged at that much higher level, although it has temporarily become much higher in between. All of this means our TWI-5 starts today at just 73.6 and little net change from this time yesterday.

Bitcoin price is again lower today down -2.0% from the same time yesterday at US$37,985. Volatility over the past 24 hours has been moderate at +/- 2.6%.

The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».